The single-family rental market has long been a highly fragmented rental market, dominated by individual investors and mom-and-pop management shops. However, the economic downturn unleashed a wave of single-family foreclosures that created an opportunity for an institutional-grade, professionally managed single-family rental market to emerge. Today, the adolescent industry has cleared some of the initial hurdles, establishing itself as a veritable market sector even as it strives to gain scale and efficiency.
During the 2015 NMHC Spring Board of Directors Meeting, NMHC Chairman Daryl Carter of Avanath Capital sat down with Bryce Blair, executive chairman of Invitation Homes, and David Miller, CEO, president and director of Silver Bay Realty Trust Corp., to find out where the single-family rental market is heading.
There’s little question demand for single-family rentals exists, as a third of all renters rent single-family homes. Many single-family renters are people with children and pets who often need more space than most apartments offer and a proximity to different community attractions and services. But there’s more.
“It's also about the level of customer service,” said Blair. “Just like there are people who want to rent an apartment from a mom and pop and others that want to rent from an institutional firm, there will be people who want to rent single family like that and want the services institutional firms can offer.”
But while a higher level of professionalism and service is a competitive advantage, there’s the question of delivering it consistently over a disparate set of assets. “If you look under the covers, it's not as finely tuned machine as an Equity [Residential, for example],” explained Blair. “It's a lot of brute force being used to manage those assets. But it's changing. There’s a lot of technology being used to manage the assets.”
Blair also said that the lifecycle of the single-family rental industry cannot be understated. The industry has grown rapidly, but there’s a steep learning curve because most of these companies didn’t exist prior to 2008. “It’s like trying to build a bicycle while riding it,” said Blair.
Miller agreed. “There’s a lack of appreciation of where we are as an industry,” he said. “It's new and we've been expanding rapidly, so many of these companies aren't stabilized yet.”
He said it’s also important to take stock of the hurdles the industry has already cleared. “People said, ‘You’re not going to buy 1,000 homes.’ And we did that. Then it was, ‘You’re not going to find people to rent them.’ We did that. And then it was, ‘You’re not going to make money.’ And then we did that. Then it was, ‘You won’t find financing.’ And we did that.”
As former apartment executives, Blair and Miller acknowledged that there are differences in the business models between single-family and apartment rentals, but they also said the differences aren’t as great as some in the industry might expect. Resident retention is higher and tenure is longer and, yes, it costs more to operate a single-family home than an apartment. However, in many way the costs even out so the take-home is in many ways comparable.
“We're not mowing yards, we're not running a club house, we don't have leasing staff, we don't pay utilities and turnover is half,” explained Blair. “We’re essentially delivering far fewer services far less efficiently, so they sort of balance out.”